The Challenge Of Vitality

TIMES HAVE changed for Philadelphia.

We were on the verge of becoming the next Detroit. Instead, following THE best practices of other cities, starting in 1997, Philadelphia created a tax abatement and other incentives to jump-start the housing market.

Fueled by the national phenomenon of a renewed interest in urban living and our competitive advantage (we are more affordable than other big East Coast cities), Center City and many other Philadelphia neighborhoods have seen a stunning rebirth, with a flood of new residents, garnering international attention.

This is the good news. We are gaining residents, businesses and economic development.

But it is bad news for people who can’t afford the new condos, and for our city’s long-term future as a diverse and vibrant urban environment.

Today, neighborhoods across the city are struggling to balance the pressures of new development with the interests of existing residents and the threat of displacement. Areas that have gentrified see resentment and conflict between new and old residents.

This issue is nothing new and is not unique to Philadelphia. A recent New York Times article on rapid development in Spanish Harlem cited the “familiar story of gentrification.”

With new market demand, financial and social pressures make it difficult for many residents to stay and enjoy the benefits of their reborn community — increased safety, better schools, cleaner streets and more businesses. As a result, we see the disturbing phenomenon of residents fighting the elements that will improve their community.

Unlike New York, Philadelphia is still affordable, and while a number of neighborhoods have gentrified, others are still on the verge or years away.

But we are at a turning point where it will be crucial for the next mayor to find a way to empower existing communities, while not curbing the new development that is bringing disadvantaged neighborhoods back to life.

Many cities have developed inclusionary housing policies (market-rate developers must build a certain percentage of affordable units), and City Council is considering such an approach. However, we also have an asset not available to most cities: our high homeownership rate.

Census data shows that Philadelphia has the highest poverty rate of the nation’s 10 largest cities, at 24.5 percent. At the same time, we have a citywide homeownership rate of 59 percent, much higher than comparable cities.

Even the most disadvantaged Philadelphia neighborhoods (with more than 25 percent of residents with incomes below the poverty line) still have at least a 40 percent ownership rate. Compare this to a neighborhood like Harlem in New York, with about 10 percent homeownership, and a citywide average of 32 percent.

We have an opportunity that very few cities have: many low- and moderate- income homeowners. When an area gentrifies, homes may increase substantially in value. From 1999-2005, the median sale price in East Falls went from $70,000 to $202,000; in Fairmount, from $105,500 to $300,000; in Fishtown, from $40,000 to $159,900; and in University City, from $100,000 to $322,500.

Philadelphia has more than 92,000 owner-occupied households with incomes of less than $20,000 a year. If low- and moderate- income homeowners could afford to stay in gentrifying communities, they could benefit from the area’s rebirth, and stand to develop a valuable asset. Over time, this approach could have an impact in reducing our city’s poverty rate, while revitalizing our neighborhoods in a way that is equitable and diverse.

City Council has introduced several bills to deal with this problem that would cap the amount property taxes can increase per year.

This approach may be a good start, though many low-income homeowners can’t afford even a modest tax increase. In addition, the city would miss out on the tax dollars from wealthier homeowners who can afford the increase.

What we really need for low- and moderate-income homeowners is a program to freeze property taxes until time of sale or transfer.

While this solution seems simple, the problem is that Pennsylvania’s state constitution has a uniformity clause — everybody must get taxed at the same rate, without exception for income or age, unless the General Assembly funds the difference.

We actually do subsidize a program where seniors can apply for a freeze in property taxes. Unfortunately, it is only for homeowners age 65 and older making less than $14,500 a year.

FUNDS ARE limited, but it is critical that we find the money to expand this program to cover homeowners of all ages, with a higher income cutoff. A less-desirable alternative is to provide a tax deferment, paid upon time of sale.

This, of course, is no silver bullet — it must be part of a comprehensive approach. But Philadelphia should take advantage of the short window of opportunity while we still have a large number of low- and moderate-income homeowners in areas that have yet to revitalize.

In a generation of smart policy, we can protect homeowners, reduce our poverty rate and no longer need this kind of approach. We will set Philadelphia apart from hyper-gentrified cities like New York, and attract new residents and investment, while building vibrant, mixed-income communities.